Buy HF for long term, avoid Atlas

A Nairobi Securities Exchange staff monitors trading at the Exchange building. PHOTO | FILE

What you need to know:

  • This was the third year in a row that Atlas was recording full year losses. According to the Atlas’ balance sheet for the 2013 full year ended June 2014, the logistics firm returned a net loss of Sh147 million.

NSE Indices: The NSE 20 Share Index last week held tightly above the 4,000 psychological mark despite losing minute points from the previous week’s closing point. On Friday, the blue-chip index ended the week at 4,009.26 points.

On the other hand, the NSE 25 Share Index closed the week at 4,254.86 points while the NSE All Share Index settled at 146.93 points.

HF Group: Housing Finance last week announced a 48 per cent gain in profits in the first quarter of 2016 compared to the same period last year. According to a market report by SBG Securities, HF’s earnings in growth were largely bolstered by a 28 per cent growth in interest income which was driven by a Sh5.7 billion growth in loan and advances to customers.

“The company kept a tight lid on operating expenses with staff costs falling by 3 per cent compared to the same period last year,” the report noted. In the quarter, HF’s net non-performing loans dropped marginally to Sh27 billion from Sh2.8 billion. Additionally, SBG observes that HF is relatively generous in its dividend payment policy. “This explains the limited shareholders’ equity growth in the face of significant profit growth,” the report said.

Consequently, according to SBG, HF may need to raise its capital or trim its dividend pay-outs. However, according to SBG, HF Group’s share is currently relatively cheap to buy.

“HF is currently trading below its book value with shareholder’s equity of bout Sh11 billion in comparison to a market capitalisation of about Sh.7.5 billion,” the report said. “The shift to full commercial banking should lower the cost of funding as customer deposits grow which will boost net interest growth.”

On Friday, HF closed the market at Sh21.50 per share. The counter has traded at a high of Sh34.50 per share and touched a low of Sh18.80 per share over the past one year.

Atlas: After issuing a profit warning last month, Atlas Africa Industries last week announced a Sh3.42 billion net loss for the 18 months ended December 2015.

Third time in a row

Out of this loss, Sh1.94 billion was caused by the firm’s closure of its Kenyan business. Further, according to Atlas chairman Ian Mann, the performance by the firm in the year was immensely subdued by a huge load of bad debts.

This was the third year in a row that Atlas was recording full year losses. According to the Atlas’ balance sheet for the 2013 full year ended June 2014, the logistics firm returned a net loss of Sh147 million.

In the 2014-2015 financial year, the company posted a half year loss for the period ended December 2014 of Sh609 million. In the 2015 financial year, Atlas further shocked its shareholders by announcing that it had posted a Sh1 billion net loss. According to Mr Ndindi Nyoro, the head of Investax Capital Ltd, this performance does not augur well for investors.

“This is a chain of losses that may take time to break. The diversification strategy into green-field markets that the company has not ventured in before provides a cloud of uncertainty on whether it will fail or extend the loss-making streak,” he says.

“Investors will do well to stay away from this counter and instead focus on other valuable stocks in the market.”

On Friday last week, Atlas closed the week at Sh1.35 per share, down by 3.57 per cent from the previous day’s average closing price of Sh1.40 per share. The stock has tumbled from Sh12.10 apiece over the last one year.

Longhorn Rights Issue: The Longhorn Rights Issue kicked off last week at a price of Sh4.20 per share. The offer, which is targeting Sh530 million from the sale of 126 million shares, is expected to close on May 6 with crediting of the new rights into investors CDS accounts expected to take place on May 30.

In case of oversubscription, investors will get their refunds on May 30. The new shares will be listed on NSE and start trading on May 31. Longhorn shareholders may buy their rights to void getting diluted. On Friday last week, Longhorn gained 5.81 per cent to settle at Sh4.55 per share from the previous day’s Sh4.30 per share price.